UBS says that Israel's offshore natural gas discoveries will gradually boost the country's GDP by 0.1-0.2% per year in 2011-12, rising to by 0.2-0.4% in 2013-16 and as much as 0.6-0.7% in 2017-20, when the Leviathan field begins production. The bank says that annual GDP growth will then substantially slow down.
UBS says that the budget revenue from natural gas will likely be modest this decade, amounting to no more than 0.2% of GDP per year, but that it will rise to 0.6-0.7% of GDP per year in 2022-25. The government aims to tax natural gas revenue at 52-62% over time. However, if Israel were to set up a sovereign wealth fund, as expected, these revenues might not be available for ordinary budget spending.
UBS says that the establishment and careful management of a sovereign wealth fund will help sterilize a large part of the natural gas-related of foreign exchange inflows, mitigating the probable appreciation of the shekel and helping avoid the Dutch disease.
UBS says that, assuming that all the budget revenue from natural gas would from now on is saved in a sovereign wealth fund, its assets would rise to $4.3 billion (0.9% of GDP) by 2020 and $42.5 billion (5.0% of GDP) by 2030. With a return of 5% a year, annual income could rise from $200 million in 2020 to $2.1 billion in 2030.
UBS says that the real game changer could be oil. "Geological tests suggest a possibility that, in addition to natural gas, Israel might also find sizeable quantities of offshore oil. While the ‘probability of success’ is currently considered to be low, our calculations suggest that, in the event of success, oil could potentially deliver a boost to GDP growth, the budget and the external balance that might potentially be even bigger than the impact from natural gas. This would also imply a larger appreciation potential for the shekel and an even greater requirement to manage the resulting macroeconomic challenges through a carefully managed sovereign wealth fund. More meaningful results of geological tests on oil are expected in late 2011."
UBS notes that until a few years ago, Israel imported over 95% of its energy, and that the energy import bill totaled $10 billion - 4.5% of GDP - 2010. A big shift to natural gas is now underway, and already accounts for one-third of electricity production, based on domestic and Egyptian sources. The Tamar (8.7 trillion cubic feet) natural gas find in 2009 and Leviathan (16 trillion cubic feet) in 2010 were the biggest deep-water gas discoveries of the past decade worldwide, and could help Israel not just to cover a large part of its own energy needs in the future, but even to become a net exporter of natural gas.
Israel has made the exploration of its natural gas resources a strategic priority in view of the political turmoil in the Middle East, especially in Egypt, and the risk that gas imports from it might be terminated, boosting the need for domestic sources.
UBS says that Israel could claim as much as two-thirds of the Levant basin, which may hold as much as 122 trillion cubic feet (3.45 billion cubic meters) of gas, with the rest would lie in the territorial waters of Lebanon, Cyprus, Gaza and Egypt. Israel's share of this gas - 2 billion cubic meters - would make Israel the 18th largest owner of natural gas reserves. Exports from Leviathan could begin at $3 billion a year in 2017, rising to $6 billion a year in 2020.
Published by Globes [online], Israel business news - www.globes-online.com - on May 11, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011